Economic Factors Associated with Income Inequality: Panel Evidence from 93 Countries

Income inequality constitutes a significant characteristic of socio-economic development, since an increase in aggregate output is not identical to broader participation of different population groups in the distribution of generated income. The aim of this study is to identify economic factors consistently associated with within-country changes in income inequality using panel data from 93 countries over the period 2002–2021. The empirical analysis is based on data from the World Bank’s World Development Indicators and Poverty and Inequality Platform. The sample covers 93 countries over the period 2002-2021 and includes 1,369 country-year observations in an unbalanced panel. The study employs descriptive statistics, correlation analysis, multicollinearity diagnostics, and panel regression analysis. The results indicate a robust negative association between income inequality and the level of economic development: a 1% increase in GDP per capita is associated with an approximately 0.048-point decrease in the Gini index (p<0,01). A onepercentage-point increase in the unemployment rate is associated with a 0.068-point increase in the Gini index (p<0,01), while a 10-percentage-point increase in trade openness is associated with an approximately 0.27-point increase in the Gini index (p<0,01). These relationships remain robust across alternative model specifications and when the models are estimated separately for income-based and consumption-based Gini measures. The estimates for GDP growth, natural resource rents, urbanization, and inflation are less robust. Further research may extend the analysis through dynamic panel models, instrumental-variable approaches, and alternative databases on inequality.

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